The four key components of Strategy Analysis are principles, practices, techniques, and skills. They play an essential role in identifying and validating the organization’s strategic needs, defining suitable solution approach(es) and solution(s), and planning, monitoring, and engaging stakeholders to achieve the organization’s strategic objectives. Techniques describe a step-by-step approach to conducting Strategic Analysis activities.
Do you want to analyze the impact of market share, market growth, and your portfolio of brands and businesses? Here is a Strategy Analysis technique to achieve that. This blog will look at a technique called The Boston Matrix with examples.
The Boston Matrix, also known as the BCG Matrix, was developed by Bruce Henderson in the late 1960s while he was working as a consultant for the Boston Consulting Group. The BCG Matrix is a strategic tool used to analyze a company’s portfolio of products or services. It is a visual tool used to compare the relative market share and industry growth rate of different products or services in order to determine the best way to allocate resources and investments. The BCG Matrix is divided into four quadrants: Stars, Cash Cows, Question Marks, and Dogs. Each of these quadrants represents different levels of market share and industry growth rate. Stars represent products or services with a high market share and industry growth rate. Cash Cows represent products or services with a high market share but a low industry growth rate. Question Marks represent products or services with a low market share but a high industry growth rate. Finally, dogs represent products or services with low market share and industry growth rates. The BCG Matrix is a useful tool for companies to analyze their portfolio and make strategic decisions about where to invest their resources. By analyzing each product or service according to its market share and industry growth rate, companies can determine which products or services are best suited for investment and which should be phased out. The BCG Matrix also helps companies identify potential new product or service development opportunities.
The Boston matrix – named after the Boston Consulting Group, which devised it – is a method of classifying a company’s activities according to market share, profitability, and growth potential. The Boston matrix is one of the most widely used strategic analysis techniques. It helps businesses understand their current and future competitive landscapes. It also enables Business Analyst Bootcamp owners to improve products, identify new opportunities and decide which products/services to eliminate.
The Boston Matrix divides business activities into four categories:
Figure 9: Boston Matrix
- Stars – activities that have high market share and high market growth
- Cash cows – activities that have low market growth, but high market share
- Question marks – activities that have high market growth, but low market share
- Dead dogs – activities that have low market share and low market growth.
This kind of diagnosis can help identify areas for product development and areas ripe for withdrawal. The matrix will also show which are the high-risk areas.
Four ways in which the BCG matrix helps in business strategy are given below:
- If innovation is the prime focus, then invest more in Stars and Question Marks. For example, it may be possible to push a Question Mark into a Star and, later, a Cash Cow by investing more in it.
- If it’s not possible to invest more into a product, leave it alone by keeping it in the same quadrant. One of the advantages of a Cash Cow is that it’s a well-established product that takes less effort to maintain.
- Reduce your investment and take out the maximum cash flow from a product, which increases its overall profitability. This strategy is best used for Cash Cows.
- Divest the amount of money invested in a product and apply it elsewhere. This strategy is best for Dogs.
Advantages of The Boston Matrix as a strategy analysis technique
- Easy to Understand: The Boston Matrix is simple to understand and interpret. It allows users to visualize the market position of their products and services quickly and effectively.
- Reliable: The Boston Matrix is a reliable tool to identify a product’s or service’s strengths and weaknesses. As a result, it helps managers to make sound decisions about the product or service and its future.
- Flexible: The Boston Matrix is a flexible tool that can analyze various products and services in different markets.
- Cost-Effective: The Boston Matrix is a cost-effective strategy analysis tool because it does not require expensive software or complex calculations.
- Comprehensive: The Boston Matrix provides a comprehensive view of a product or service’s market position. As a result, it can be used to analyze the competitive landscape and identify potential changes in the market.
Weaknesses of The Boston Matrix as a strategy analysis technique
- Limited Information: The Boston Matrix only considers two factors: market share and growth rate. This limits the amount of information available to assess a business’s strategy, as other factors such as customer loyalty, cost of doing business, competitive positioning, or product quality may not be accounted for.
- Simplistic Nature: The Boston Matrix simplifies the strategic decision-making process by categorizing products and markets into four distinct categories. This simplification can be too simplistic to accurately assess a company’s strategy.
- Potential for Misinterpretation: Different people may interpret the Boston Matrix differently, which can lead to confusion and misunderstanding. Additionally, when a company’s products or markets are categorized, it can be difficult to accurately assess the value of each product or market.
- Subjectivity: The Boston Matrix relies on subjective assumptions about market share, growth rate, and other important factors. This can lead to inaccurate interpretations and suboptimal decisions.
Relationship of The Boston Matrix with other strategy analysis techniques
The Boston Matrix is a tool used to analyze the strategic position of a product or brand. It is often used in conjunction with other strategy analysis techniques, such as SWOT analysis and PEST analysis, to give a more comprehensive view of a company’s strategic position. A SWOT analysis looks at a company’s Strengths, Weaknesses, Opportunities, and Threats, while PEST analysis looks at the Political, Economic, Social, and Technological factors that affect a company. The Boston Matrix can then be used to assess the profitability of different products and brands in the context of the SWOT and PEST analyses. It can help identify which products are currently profitable, which have the potential for growth, and which ones should be discontinued.
Future of The Boston Matrix as a strategy analysis technique
The Boston Matrix is a quite popular tool used by businesses to evaluate their portfolio of products and services. While the Boston Matrix has been used since the 1970s, it still has relevance in today’s business world. As a strategic analysis technique, the Boston Matrix can be used to help a business assess and prioritize its portfolio of products and services. It can also be used to help a business understand the competitive dynamics in a market, identify potential opportunities and threats, and develop strategies for success. As technology continues to evolve and businesses look for ways to better understand their markets and customers, the Boston Matrix can help them make informed decisions about their product and service portfolios. As businesses look to create a successful strategy, the Boston Matrix can be a valuable tool to help them identify and focus on the most important elements of their portfolio.
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